PracticeCAPM

PracticeCAPM - Commerce 374 Winter 2011 Home practice on...

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Commerce 374 Winter 2011 Home practice on CAPM Part I: Multiple Choice 1 The variance of a portfolio of risky securities is . .. A) the sum of the securities’ covariances A) the sum of the securities’ variances B) the weighted sum of the securities’ covariances B) the weighted sum of the securities’ variances 3.. Asset A has an expected return of 15% and a Sharpe ratio of .4. Asset B has an expected return of 20% and a Sharpe ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. A) asset A B) asset B C) no risky asset D) can't tell from the data given 5. According to the capital asset pricing model, __________. A) all securities must lie on the capital market line B) all securities must lie on the security market line C) underpriced securities lie below the security market line D) overpriced securities lie above the security market line 8. The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should __________. A) buy stock X because it is overpriced B) buy stock X because it is underpriced C) sell short stock X because it is overpriced D) sell short stock X because it is underpriced 9. A security's beta coefficient will be negative if _____________. A) its returns are negatively correlated with market index returns B) its returns are positively correlated with market index returns C) its stock price has historically been very stable D) market demand for the firm's shares is very low 10. An index fund that holds the market portfolio will need to rebalance its portfolio _____________. 1
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1. Prices change B) Expected returns change C) A stock split occurs D) None of the above 11. The beta of a security is. .. A) The covariance between the security and the market returns divided by the variance of the market’s returns. B) The covariance between the security and the market returns divided by the variance of the securities’ returns. C) The correlation coefficient between the security and the market returns.
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This note was uploaded on 04/17/2011 for the course COMM 299 taught by Professor Desrochers during the Spring '08 term at UBC.

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PracticeCAPM - Commerce 374 Winter 2011 Home practice on...

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